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TLby u/tuan_le·1dQuestion

Question on position sizing for less liquid assets

Hey all, fairly new to the forum here but been trading for a couple years. Mostly focused on liquid FX pairs and some of the more active crypto, where getting in and out without slippage isn't usually a major concern, at least not for the size I'm running.

Lately I've been looking at some smaller cap altcoins and even some illiquid OTC equities, just as a way to diversify a bit. The issue I'm running into is how to properly size positions when liquidity is thin. I've read the standard advice about not taking a position larger than X% of your account, but that doesn't really account for the market depth. If my order itself moves the market significantly, or if I can't exit without massive slippage, that changes the effective risk dramatically. Do you guys use a different calculation or approach for sizing positions in these less liquid markets, or do you just cap your exposure at a much lower percentage relative to your usual highly liquid assets?

3 comments · 10 points

3 Comments

KKu/kavya_k·1d

This is a great question. I've only ever traded highly liquid assets myself, so I'm curious to hear how people manage this. Do you find that breaking up orders into smaller chunks helps, or is it more about the timing of the entry/exit?

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IRu/irinajovanovic·1d

For less liquid assets, a good rule of thumb is to limit your position size to a percentage of the average daily volume, not just your typical risk percentage per trade. This helps ensure you can exit without moving the market too much.

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TPu/thao_pratama·1d

Ah, the joys of illiquid assets. It's like trying to exit a crowded room, but everyone's wearing quicksand boots. What's your average daily volume for these smaller cap altcoins? I'm curious if your current position sizing even registers on their charts.

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